:: Defensive ERISA Preemption Inadequate To Sustain Removal Of Subrogation Dispute
Following an automobile accident, Plaintiffs Richard and Pamela Cottrill filed suit in the Court of Common Pleas of Perry County against Allstate Insurance Company (”Allstate”) and Blue Cross Blue Shield of Michigan (”Blue Cross”). In addition to seeking damages against Allstate, Plaintiffs asked the court to declare the rights and obligations of the parties to the two insurance contracts.
Blue Cross removed the case to federal court, alleging that Plaintiffs’ claim against Blue Cross was completely preempted by the Employee Retirement Income Security Act of 1974 (”ERISA”). This matter is currently before the Court on Plaintiffs’ motion to remand the case to state court.
Cottrill v. Allstate Ins. Co., 2009 U.S. Dist. LEXIS 101518 (S.D. Ohio Oct. 30, 2009)
Cottrill reveals how complex ERISA subrogation and reimbursement issues remain notwithstanding two relatively recent Supreme Court opinions addressing the scope of these remedies.
In this opinion, the district court holds that the group health insurer improperly removed the reimbursement dispute to federal court. In its opinion the court provides perspective on complete versus conflict preemption in the context of ERISA plan reimbursement claims.
The Facts
On July 10, 2007, Plaintiff Richard Cottrill was injured in an automobile accident caused by Timothy Ratliff who was insured by Progressive. Progressive paid its policy limit of $12,500.
Thereafter, Cottrill demanded that Allstate, his insurance carrier, pay $ 87,500, the policy UIM limit minus the $ 12,500 paid by Progressive. Allstate advanced only $ 10,000, and eventually offered Cottrill just $ 15,000 to settle the claim, an offer which Cottrill declined.
Cottrill was also covered under an employer-sponsored group health insurance plan with Blue Cross. Blue Cross paid $ 23,240.66 toward Cottrill’s medical bills and then asserted subrogation rights pursuant to the terms of the plan.
The State Court Litigation
On July 9, 2009, Richard Cottrill and his wife, Pamela Cottrill, filed suit in the Court of Common Pleas of Perry County in which they asserted a UIM claim against Allstate and additional state law remedies pertaining to the claim denial.
They also sought a declaratory judgment concerning Blue Cross’s subrogation rights under the terms of the medical benefits plan.
Plaintiffs contend that because Allstate’s policy limits are insufficient to make them whole, Blue Cross is barred under Ohio law from siphoning the proceeds of any future settlement or jury verdict obtained by Plaintiffs against Allstate.
Removal
Blue Cross removed the case to federal court, arguing that because Plaintiffs seek a determination of rights under an employer-sponsored health plan, Plaintiffs’ state law claim against Blue Cross is preempted by ERISA. The Cottrills moved to remand which joined the issue over the scope of ERISA remedies.
The Issue In A Nutshell
In order to prove that Plaintiffs’ ERISA claim was properly removed, the court stated that Blue Cross must prove that:
(1) Plaintiffs have standing under § 1132(a) to pursue their claim;
(2) their claim falls within the scope of an ERISA provision that they can enforce via § 1132(a); and
(3) the claim must not be capable of resolution without an interpretation of an ERISA-governed employee benefit plan.
See Huisjack v. Medco Health Solutions, Inc., 492 F. Supp.2d 839, 849 (S.D. Ohio 2007).
Point # 1 was self evident.
Point # 2 was disputed, and ultimately, the insurer’s undoing. Here’s why . . .
Characterizing The Plaintiffs’ Claim Against Blue Cross
The Cottrills contended that their claim against Blue Cross,” as properly construed”, did not fall within the scope of § 1132(a).
In contradistinction, they argued that they sought:
. . . a declaratory judgment concerning Blue Cross’s right “to obtain subrogation from the proceeds of any settlement or jury verdict obtained by Plaintiffs against Defendant Allstate in light of the devastating injuries sustained by Plaintiff Richard Cottrill which are permanent in nature and may necessitate ongoing medical treatment.” Plaintiffs further allege that because the limited proceeds available from Allstate cannot adequately compensate Richard for his injuries, Blue Cross’s subrogation rights should be barred.
In their motion to remand, Plaintiffs argue that they could not have brought this kind of claim under § 1132(a)(3).
Plaintiffs’ Prevail On Remand Issue
The Court agreed with the plaintiffs.
As to (a)(3)(A):
Subsection 1132(a)(3)(A) is inapplicable because Plaintiffs do not seek to “enjoin any act or practice which violates any provision of [ERISA] or the terms of the plan.” Since ERISA is completely silent on the topic of subrogation, see Bollman Hat Co. v. Root, 112 F.3d 113, 118 (3d Cir. 1997), Blue Cross’s efforts to enforce its subrogation clause do not violate ERISA. Moreover, according to the complaint itself, the terms of the plan expressly provide for subrogation.
Therefore, Plaintiffs cannot be seeking to enjoin any act or practice that violates the terms of the plan.
As to (a)(3)(B):
Subsection 1132(a)(3)(B) is also inapplicable since Plaintiffs do not seek “to obtain other appropriate equitable relief (i) to redress such violations or (ii) to enforce any provisions of this subchapter or the terms of the plan.” Plaintiffs do not seek to redress violations of ERISA or of the medical benefits plan. 29 U.S.C. § 1132(a)(3)(B)(i).
As explained above, ERISA is silent on the subject of subrogation and the plan expressly grants Blue Cross subrogation rights. Nor do Plaintiffs seek to “enforce” any particular provision of ERISA or the terms of the medical benefits plan. In fact, they seek to bar enforcement of the terms of the plan, arguing that, under Ohio common law, Blue Cross cannot enforce its contractual subrogation rights until Plaintiffs have been “made whole.”
Note: The Court’s conclusion tidily sums up the key point:
Because Plaintiffs do not seek to enjoin violations of ERISA or the plan, and do not seek other equitable relief to redress such violations or to enforce any provisions of ERISA or the terms of the plan, they could not have filed suit under § 1132(a)(3). Because their claim against Blue Cross is not enforceable under that subsection, it is not completely preempted and was not properly removed.
Preemption Revisited - Let’s back up and take another look at what the issue was before the Court.
In brief, that issue was “whether Plaintiffs’ claim against Blue Cross, seeking declaratory relief under state law, falls within the scope of ERISA’s civil enforcement provision, making removal proper.”
Note, the insurer did not file a claim against the plan participant – thus, the sole issue for purposes of removal was the nature of the participant’s claim.
Under 28 U.S.C. § 1441(a), “any civil action brought in a State court of which the district courts of the United States have original jurisdiction, may be removed by the defendant or the defendants, to the district court of the United States for the district and division embracing the place where such action is pending.”
District courts have original jurisdiction over cases that arise under federal law. See 28 U.S.C. § 1331. Generally, a cause of action “arises under federal law only when the plaintiff’s well-pleaded complaint raises issues of federal law.” Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58, 63 (1987).
Caveat here - “The fact that federal pre-emption may be raised as a defense normally does not justify removal to federal court.” Translated: A passive defensive posture will not get an ERISA reimbursement case to federal court.
The Rest Of The Story - The Court relied upon another opinion out of the Southern District, Community Insurance Company v. Rowe, 85 F. Supp.2d 800 (S.D. Ohio 1999) — which in turn relied upon a somewhat dated Seventh Circuit opinion, Blackburn v. Sundstrand Corp., 115 F.3d 493, 496 (7th Cir. 1997) that addressed defensive preemption in the context of the Illinois common fund caselaw. (That’s a thicket we will not enter into today.)
This is important because Blackburn was distinguished by a more recent Seventh Circuit opinion where subject matter jurisdiction was found when the plan asserted a claim for relief:
In conclusion, the district court correctly accepted subject matter jurisdiction under 502(a)(3)(B) because the Committee was seeking an equitable remedy to enforce the terms of the Plan.
Admin. Comm. of the Wal-Mart Stores, Inc. v. Varco, 338 F.3d 680 (7th Cir. Ill. 2003)
Thus, removal could be sustained were the plan to assert a counterclaim along these lines invoking a claim based upon ERISA, i.e., 1132 (a)(3) equitable relief. Though the district court did not say so, I presume it would have so held as this would be consistent with the authorities on which it relied.
Final Note – Remaining in state court is not tantamount to victory for the plan participant. ERISA conflict preemption principles are often scrupulously applied by state courts to defeat state law claims. In any event, Cottrill is one of those thought-provoking cases that deserve a careful reading by those involved in ERISA claims disputes.
